The purpose of the paper is to study the extent and potential significance of foreign direct investment (FDI) in the economic development of the Arab countries. The paper will first highlight the importance of international capital and financial flows in the developing countries, with a special emphasis on the position of such flows, especially FDI, in the Arab world. This will be followed by an analysis of: the financing needs of Arab countries as determined by the projected future size of the savings-investment gap; the determinants of FDI in the Arab countries, based on an eclectic model of economic and political factors; the effect of FDI on Arab technological development and total factor productivity (TFP). The paper will conclude with policy recommendations and suggestions.
